Editor: George and Nancy, please describe the ways in which the offices interface with one another.
Manning: Our firm is organized by practice groups, which are not constrained by geography, in order to put the attorney with the greatest expertise on a matter. Our two Texas offices have interchangeable personnel in terms of available talent, allowing the firm to cross-pollinate on many matters whether they be in the bankruptcy, the trial practice, the labor employment, the transactional, or the intellectual property areas. To the extent that there is a not a practice area in Houston, for example, tax and employee benefits, the Dallas and other offices provide the tax expertise.
MacKimm: George has just described what is the signature element of our culture. The reason this is important to our clients, not just in Texas but around the world, is that our approach to the practice of law ensures that all of the firm's resources and talents are available to our clients regardless of the individual office with which they have contact. That is the essence of the meaning of "One Firm Worldwide."
Editor: Please describe each of your practice areas and the size of each of your offices.
Manning: The Dallas Office has 195 lawyers. It is a full service office with most of the firm's practice groups. Not only do I serve as partner-in-charge of the Dallas office but I also am a trial lawyer. My practice focuses in the corporate criminal investigations area - such matters as criminal antitrust cases, securities cases, export licensing work and a sub specialty in Foreign Corrupt Practices Act work. Many of these areas have both a civil and criminal component and involve dealing with issues that cross several disciplines. For example, Jones Day lawyers are currently engaging in remedial work for a long-time client in a variety of countries - Mexico, South American countries, China, Japan, Russia, India, Italy, France and Belgium - an effort that is being directed from the Dallas office.
MacKimm: Our Houston office has 62 attorneys. I defend corporations who are facing mass tort actions or other significant environmental liabilities, brought by government entities or by private citizens. In some cases the claims brought are class actions. Typically, plaintiffs are seeking damages but in some cases they are seeking remedial action associated with contamination and pollution, or medical monitoring.
Editor: The Texas economy has weathered the economic downdraft better than other regions of the U.S. To what do you ascribe this factor?
MacKimm: I recently read an astonishing statistic - in 2008, at the beginning of the downturn, 70 percent of all the jobs in the United States were created in Texas. One reason that Texas has weathered the downturn better than other regions of the U.S. is that even though energy prices fell off sharply in the second half of 2008, energy prices were so high in the first half of 2008 that this factor provided a real stimulus. Also the hi-tech industry, which is strong in San Antonio, Austin, and Dallas, has fared better than other industries. In 2008, our job growth was 0.4 percent while in the U.S. it declined 2.1 percent. Another factor is that in Texas home prices simply did not experience the large swings that they did elsewhere. Still another reason affecting our economy today is tort reform in Texas. Tort reform was enacted in 2003, and since then something like 7,000 doctors and businesses associated with the medical profession relocated to Texas. The fact that Texas has no income tax makes the state attractive to business, also. Not only does the state have excellent airports but we have the port of Houston, which I think by some measure is the busiest port in the world. We have some economic development incentives like the Texas Enterprise Fund and the Texas Emerging Technology Fund, which display a willingness on the part of Texans to encourage new ventures, particularly in high tech, that we see as the future.
Manning: Another factor is that Texas has a diversified economy. Not only is it a large agricultural state, exporting products to all parts of the world, but it also has substantial natural resources. Oil and gas are primary natural resources which are produced and sold throughout the U.S. as well as exported widely. While many energy companies have a base in Texas, they are international in scope, with operations around the world. An extensive transportation network with proximity to Mexico and South America gives Texas a link with international markets. As a result of fortunes made in hi-tech which has spawned additional development, particularly in the medical field, the state has developed a huge health industry not only in terms of delivery of health services but in the incubation of new products and businesses. And lastly, a special tribute should be given the people of Texas who are undaunted by new challenges and seeking new pathways to growth by way of new inventions or formulating new models. I am not from Texas but it is pretty clear to me that there is nothing that the people in Texas think they can't do.
Editor: Has the economic decline slowed the progress of some of the important projects that have been contemplated for the state in past years, such as the huge wind-farm project fostered by Boone Pickens, the impetus for development of shale projects, etc.?
Manning: Owing to the drop in oil prices, the economics of the wind and shale projects are not as good today as they were a year ago, although we would be short-sighted to think they will never happen. The biggest impediment for the wind projects in Texas is their inaccessibility to the grid - a multi-billion-dollar infrastructure capital cost will be incurred to link wind power turbines into the grid in order to export electric power both within Texas and outside Texas. The capital costs are so high that to accomplish the national grid system will probably require government funding. The extraction of natural gas from shale is not as cost-effective at today's prices but will be shortly. Our Texas lawyers are now assisting the state of Pennsylvania by exporting our knowledge of gas-from-shale extraction for application in the Marsalis shale region.
Editor: What kinds of deals are your respective offices seeing that have their origins in Texas or elsewhere?
MacKimm: We are seeing lots of distressed mergers and acquisitions, which is not unlike the rest of the U.S. What is unique to Texas is that we are seeing more mid-market energy acquisition deals.
Manning: Basic businesses unable to get refinancing along with their supply chains have not enabled them to secure enough cash to restructure under the normal bankruptcy process. Because of such distressed M&A, we are seeing business liquidating through asset sales under Section 363 of the Bankruptcy Code in order to pay off creditors. A current example is the purchase of assets of Frontier Airlines by Republic Airlines done as a credit bid instead of the cash bid offered by Southwest Airlines. The cash bid was insufficient to extinguish the liens held by the large creditors. There is a great deal of pent-up money in private equity funds that are beginning to get back into the game because the value proposition is so great in the turn-around prospects. However, most of the deals are not huge public M&A deals - rather they are acquisitions done by value investors seeking to pick up lines of business being spun off to reduce the debt of larger companies. Companies are shedding assets because they face debt repayments coming due in the next two or three years as well as to provide for liquidity.
Supply chain companies producing component parts to the auto companies are a case in point. Recently Heather Lennox in our Cleveland office, together with other Jones Day lawyers from New York, Dallas, Chicago and Columbus, worked on the auction of automotive supplier Metaldyne's businesses and assets. The Carlyle Group came into the auction and bought the business through a credit bid of the entire value of $400-plus million in a term loan. This is another example of how value investors are taking stakes in these basic industries that are undergoing downsizing.
Editor: Explain the favorable tort reform measures that have been enacted in Texas that will be favorable to attracting business.
MacKimm: One of the most significant reform measures was legislation in 2003 capping non-economic damages at $250,000. Before that time the average award for a personal injury lawsuit was in the range of $1.21 million; now it's about $880,000. As a result malpractice lawsuits have plummeted and medical malpractice insurance premiums have gone down about 30 percent, a major factor in attracting doctors to Texas and making business attractive for all kinds of industries. Tort reform continues to have very beneficial effects.
Editor: What roles can law firms play in attracting business to Texas?
MacKimm: I don't know the extent to which corporations consider the quality or caliber of legal services in markets they are considering. But law firms can reinforce the notion that Texas is an attractive venue by providing first-rate legal service in the most efficient way possible.
Manning: Structured in the way Jones Day is with offices around the world, we are often asked to look at investment opportunities around the world, particularly for our private equity clients. To the extent we can give those potential investors a window into opportunities in Texas, we can raise the state's profile. The driving force, however, is a business community that is very receptive to newcomers and new investments. If you look at the world at large, probably the most aggressive business centers in the U.S. are Houston, Dallas, Atlanta and Chicago, which are seeking regional and national headquarters for multinational companies. The transportation system is second to none. Texas's central location makes either coast easily accessible as well as South America, Asia, Europe and Australia. Our footprint abroad is useful for outbound U.S. investments as well as return investments in Texas. For example, the Dallas office represents an Israeli company that owns oil fields in West Texas, and has aided their expansion throughout Texas.
Editor: Please share your thoughts with our readers regarding the quality of the Texas bench.
MacKimm: The federal bench is highly regarded. In terms of state court cases litigation is vastly reduced. For the past several years you could walk into a number of courtrooms and the judges would complain about the absence of cases.
Manning: Federal judges at the district court level have an extraordinary burden of criminal cases that are consuming most of their time. They rarely get a chance to hear a civil case of long duration. They've done a nice job of delegating to the magistrates what cases they can. Many of the big civil cases are being resolved in alternate dispute resolution proceedings or are being resolved by their clients themselves.
Editor: Which of the Obama initiatives will be helpful in improving the state's economy and which do you think will be harmful?
Manning: The healthcare industry in this state is very large but outside of the major centers - UT Southwestern, Baylor in Dallas or the huge University of Houston complexes - there are local, regional and specialized delivery systems and local hospitals that are essential to the continued healthcare of Texas. Depending on how the healthcare initiative works its way through the legislative process, you may see either some improvement in the fiscal abilities of those local and regional facilities or see them decline sharply. No one has a crystal ball at this point in time.
If the price of oil recovers to its fully loaded cost, Texas should be a significant beneficiary. This applies to alternative energy sources - both solar and wind energy - but each will require significant capital investment by the state and the federal government to project those technologies into a larger role, now less than four or five percent of the total energy produced in the United States.
We're beginning to bring online more nuclear plants. Fluor has moved to Texas, and brings with it added expertise to an aging nuclear engineering base in terms of the growth of the nuclear industry.
MacKimm: I agree that Texas will be the beneficiary of the Obama administration's energy initiative. With respect to healthcare, such an important component of the Texas economy, I am confident that the Texas healthcare industry will only continue to grow, but I have no sense of precisely how healthcare reform will affect the state's economy.